Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business strategies, the primary market risk to which we are currently exposed and to which we expect to be exposed in the future is interest rate risk. The face amount of our outstanding debt as of June 30, 2026 was $1.1 billion, all of which had a variable interest rate. Our primary sensitivity in 2026 was to changes in one-month Secured Overnight Financing Rate (“SOFR”), as the interest rates on our variable-rate indebtedness were based on this benchmark rate. We use interest rate swaps in order to maintain what we believe to be an appropriate level of exposure to interest rate variability. As of June 30, 2026, the interest rate on $425 million of our variable-rate indebtedness had been effectively fixed through the use of interest rate swaps. In October 2025, we entered into an additional interest rate swap for a notional amount of $50 million, effective January 4, 2027, which will partially replace a maturing swap. We receive one-month SOFR and pay a fixed rate for all of our interest rate swaps. If market interest rates on our unhedged variable rate debt fluctuate by 100 basis points, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows, by $6.8 million annually.
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